Fast Incentives:  The Need for Speed

By Marc Wallace and Tom Hill

Get your incentive plan design over the finish line

“We have to move faster!” With the rapid pace of change, every sales organization struggles to keep their incentive programs current. Plain and simple, customers are moving faster than ever, but sales incentives are failing to keep pace – in fact, for most these plans have become costly and inefficient.  

Sales organizations are addressing a wide range of time-related challenges:

·        Leadership turns over and strategy changes every three to five years

·        Markets are redefined every year or two

·        New products and new competitors are introduced on a near-constant basis

·        Merger and Acquisition activity arises with little warning

Even under ideal circumstances, getting a new sales incentive plan from design to implementation often takes a quarter of a year.  As a result, changes to these plans are often reactive, loaded with exceptions and full of mistakes to be corrected in the next plan.  Compensation Cost of Sale is impacted by this inability to quickly react to market changes.

Clearly, speed matters when it comes to overhauling sales incentives. But there’s a complicating factor that adds to the challenge of acting in a timelier fashion: Resistance to change.

Rapid Change Is Hard for Sales Teams

As a rule, salespeople are process-driven people who manage their pipeline through consistent steps. In their eyes, the more straightforward the sale, the easier it is to harvest the incentive. If they are faced with new products or innovations, the sale becomes harder to make; thus, the incentive is harder to earn, creating resistance to change.  

Too often, the design process gets bogged down, resulting in broad dissatisfaction. Signs that this may be occurring include:

1.      Slow approvals: Constant challenges aligning decision makers

2.     Concern about revenue at risk: Too little focus on whether the plan is the right fit for the strategy and too much focus on potential unintended consequences

3.      Multiple exceptions: Grandfathered cases,parallel plans, or complex crediting

4.      Watered-down recommendations: Final recommendations lead to very minor changes to the incentives even in the face of significant business needs

Getting the incentive plan implemented:

These issues can be avoided by thinking in terms of two concepts:

1.      Strategic design:  Focusing quickly on those few things that define strategic success.  This means designing to fit the current strategy, regardless of legacy plan.

2.      Change management:  Understanding that incumbents will be impacted and that short-term rewards tactics are reasonable to get the incentive implemented.

Strategic Design

Using strategic design in crafting a sales incentive means developing a simple, clear plan that focuses on no more than two things required by the selling strategy. Industry norms and legacy plans are potential inputs, but they should not drive the design. It may sound counterintuitive, but in the interest of time it’s important to consider what not to focus on.

Aspects that must be considered in strategic design include:

·        Channel strategy

·        Selling model

·        Customer journey

·        Impact of the seller in the buy decision

·        Plan mechanics

·        Cost

Those aspects that should not be considered for purposes of efficacy include:

·        Current account assignments

·        Top legacy accounts

·        High-performing sellers

·        Revenue at risk

The plan itself should be very simple, with a direct focus on the business.  It should reflect the ideal before considering the possible.

Change Management

Change management is typically defined as a function of leadership, management communication, and organizational culture. In a rapid deployment model, change management focuses on rewards to engage sellers to move to the new model.

In crafting a change management plan, it’s important to understand how the revised incentive plan will impact stakeholders. Transition rewards that have proven successful include:

1.      Long-term incentives: Participation in an existing plan, or creation of a separate vehicle.  This may include a one-time LTI award as well.

2.      Retention payments: Payment promised in the future to keep the seller whole if a dip in earnings is anticipated

3.      Cash payments: Immediate payment to keep the seller whole, potentially attached to certain levels of performance

4.      Recognition: Clear communication that the seller is critical for the future

To be clear, this is not about “giving away money;” it is simply a better allocation of cost.  It takes pressure off the incentive design, and the costs associated with it are non-recurring.

The opportunity cost in the longer term (turnover, cost of sales growth, etc.) can be many times greater than the cost of the transition.

Get the Incentive Implemented Now

Too often, implementation is an afterthought, or results in complexity and ill will.  The Fast Incentives approach builds the project to reflect design and change management as two distinct components.  Successful sales organizations balance both.

‍

Marc Wallace is a Partner with RevenueShift and can be reached at marc.wallace@revenueshift.com.

Tom Hill is a Partner with RevenueShift and can be reached at tom.hill@revenueshift.com.